Type 2 diabetes mellitus is due to insulin resistance or reduced insulin sensitivity, combined with reduced insulin secretion. The defective responsiveness of body tissues to insulin almost certainly involves the insulin receptor in cell membranes. In the early stage the predominant abnormality is reduced insulin sensitivity, characterized by elevated levels of insulin in the blood. At this stage hyperglycemia can be reversed by a variety of measures and medications that improve insulin sensitivity or reduce glucose production by the liver. As the disease progresses the impairment of insulin secretion worsens, and therapeutic replacement of insulin often becomes necessary.

There are numerous theories as to the exact cause and mechanism in Type 2 diabetes. Central obesity (fat concentrated around the waist in relation to abdominal organs, but not subcutaneous fat) is known to predispose individuals for insulin resistance. Abdominal fat is especially active hormonally, secreting a group of hormones called adipokines that may possibly impair glucose tolerance. Obesity is found in approximately 55% of patients diagnosed with Type 2 diabetes. Other factors include aging (about 20% of elderly patients in North America have diabetes) and family history (Type 2 is much more common in those with close relatives who have had it). In the last decade, Type 2 diabetes has increasingly begun to affect children and adolescents, likely in connection with the increased prevalence of childhood obesity seen in recent decades in some places.

Type 2 diabetes may go unnoticed for years because visible symptoms are typically mild, non-existent or sporadic, and usually there are no ketoacidotic episodes. However, severe long-term complications can result from unnoticed Type 2 diabetes, including renal failure due to diabetic nephropathy, vascular disease (including coronary artery disease), vision damage due to diabetic retinopathy, loss of sensation or pain due to diabetes neuropathy, and liver damage from non-alcoholic steatohepatitis.

Type 2 diabetes is usually first treated by increasing physical activity, decreasing carbohydrate intake, and losing weight. These can restore insulin sensitivity even when the weight loss is modest, for example around 5 kg (10 to 15 lb), most especially when it is in abdominal fat deposits. It is sometimes possible to achieve long-term, satisfactory glucose control with these measures alone. However, the underlying tendency to insulin resistance is not lost, and so attention to diet, exercise, and weight loss must continue. The usual next step, if necessary, is treatment with oral antidiabetic drugs. Insulin production is initially only moderately impaired in Type 2 diabetes, so oral medication (often used in various combinations) can be used to improve insulin production (e.g., sulfonylureas), to regulate inappropriate release of glucose by the liver and attenuate insulin resistance to some extent (e.g., metformin), and to substantially attenuate insulin resistance (e.g., thiazolidinediones). According to one study, overweight patients treated with metformin compared with diet alone, had relative risk reductions of 32% for any diabetes endpoint, 42% for diabetes related death and 36% for all cause mortality and stroke. Oral medication may eventually fail due to further impairment of beta cell insulin secretion. At this point, insulin therapy is necessary to maintain normal or near normal glucose levels.